A recent Full Federal Court decision in Australia provides a useful insight as to how a Court in Australia will calculate damages in proceedings concerning the infringement of a pharmaceutical patent.
Background
The dispute concerns Bayer Pharma Aktiengesellschaft and Bayer Australia Limited (collectively, Bayer) and Generic Health Pty Ltd and Lupin Australia Pty Ltd (collectively, Generic Health).
Bayer owns Australian Patent No 780330 (the Patent) for a pharmaceutical combination of ethinylestradiol (EE) and drospirenone (DRSP) for use as an oral contraceptive. The Patent protects an oral contraceptive marketed by Bayer under the name “Yasmin”.
In 2013, Justice Jagot (the primary judge) held that the supply and sale of “Isabelle”, an oral contraceptive by Generic Health, infringed claims 3 and 11 of the Patent. Generic Health’s subsequent appeal of this decision on liability to the Full Federal Court, and its special leave application to the High Court, was dismissed.
Bayer’s claim for damages was heard by Justice Jagot in December 2016. After an eight-day hearing, Justice Jagot awarded damages of $25,437,966, plus interest, and an award of indemnity costs as Generic Health did not accept an earlier offer made by Bayer of $19,891,858.
Those orders were appealed by Generic Health and the Full Court issued its decision in late 2018 in Generic Health Pty Ltd v Bayer Pharma Aktiengesellschaft [2018] FCAFC 183. Broadly, the Full Federal Court of Australia considered the following categories of issues:
- Whether Bayer was entitled to recover damages for infringing conduct occurring prior to the amendment of the Patent. This issue was worth approximately $6.7 million (excluding interest).
- Whether every sale of Generic Health’s contraceptive, Isabelle, was a loss of a sale of Bayer’s contraceptive, Yasmin, and whether a discount of 10% to 15% should have been applied. This issue was worth up to $2.4 to $3.6 million (excluding interest).
- Whether Bayer is to be awarded a loss of profits for the sale of Bayer’s own lower-priced contraceptive, Pettibelle, which was introduced by Bayer following the withdrawal of Isabelle from sale. This issue is worth up to $1.98 million (excluding interest).
- Whether Justice Jagot erred in allowing pre-judgment interest on pre-tax losses rather than on post-tax losses. This issue is worth $1.77 million.
- Whether Justice Jagot erred in awarding indemnity costs.
Category 1:
By way of background, Bayer sought to amend claims 3 and 11 (amongst others) of the Patent after it had commenced patent infringement proceedings against Generic Health. Justice Yates allowed the amendments which (in part, and relevant to this appeal) limited the composition/preparation of the oral contraceptive to one containing a 3mg dosage of DRSP as opposed to a composition/preparation containing a range of 2mg to 4mg dosage of DRSP.
For Bayer to be entitled to claim damages before the date of amendment and from the relevant priority date, Bayer had to prove pursuant to section 115(1)(a) of the Patents Act 1990 (Act) that the specification prior to the amendment “was framed in good faith and with reasonable skill and knowledge.”
The primary argument by Generic Health on appeal was that, for Bayer to satisfy its obligations under s 115(1)(a) of the Act, Bayer would need to illustrate that at the time the specification was drafted the drafter had all the documents or information necessary to substantiate all the features of the invention described and claimed. That is, at the time the Patent was drafted, the patentee and drafter had knowledge of the relevant documentation (in this case a test report) concerning the appropriateness of the dosage range of 2mg to 4mg of the DRSP. Absent that proof, Generic Health asserted that the specification and claims prior to amendment could not be said to have been framed with “reasonable skill and knowledge”.
The Full Court held that Generic Health’s challenge was “misplaced” as it relies “on a fundamental misunderstanding of the obligations placed on a patent applicant and a patentee with respect to the drafting of a complete specification, as well as on a fundamental misunderstanding of the scope and purpose of s 115(1)(a) of the Act”.
In coming to its decision, the Full Court identified that the requirement of ‘reasonable skill and knowledge’ focuses on the “knowledge that the patentee had, or reasonably should be taken to have had” at the time the specification was drafted. Accordingly, the assessment of ‘reasonable skill’ requires “the assessment to proceed on reasonable knowledge and…reasonable knowledge is not limited to documents actually before the drafter of the specification. It is knowledge that the patentee had or reasonably should be taken to have had – whether or not the drafter, or those providing instructions to the drafter, was or were cognisant of that knowledge or its source at the time when the specification was framed”.
Accordingly, Generic Health failed on this ground of appeal.
This aspect of the decision provides a useful reminder that the responsibility for ensuring that a patent specification is drafted with ‘reasonable skill and knowledge’ is shared. That is, both the drafter of a patent specification (typically a patent attorney) and those able to ensure that the drafter of the patent specification is “properly instructed”, share this responsibility.
Whilst this responsibility may not require the drafter to be provided with proof that the invention works, the patent applicant has an obligation to ensure that the specification complies with the requirement under s40(2)(a) of the Act to describe the invention in a manner which is “clear enough and complete enough for the invention to be performed by a person skilled in the relevant art”. For this reason, the drafter must be properly instructed (as well as professionally competent and honest) so that the drafter can be taken to have the patent applicant’s knowledge of the invention.
Category 2:
Bayer argued that it was entitled to lost profits for each sale of Isabelle on the basis that every sale of Generic Health’s Isabelle was a lost sale of Bayer’s Yasmin. This is referred to as the “one for one” issue.
Following consideration of detailed evidence about the oral contraceptive market, Justice Jagot found in Bayer’s favour of the “one for one” argument. Accordingly, no discount was made to accommodate any uncertainty in the market, and the possibility of the ‘hypothetical counterfactual’ that not all sales made by Generic Health could be considered sales lost by Bayer.
Generic Health argued before the Full Federal Court that Justice Jagot should have applied a discount in the order of 10% to 15% which would reduce the damages awarded by $2.4 to $3.6 million (excluding interest).
The Full Federal Court agreed with Generic Health and held that “…if one is estimating, one still needs to apply a discount, albeit a very modest one, to reflect the assessment that one is not at certainty”. Accordingly, it held that a very small discount of 2% (and not the 10% to 15% sought by Generic Health) should be made to account for the possibility that a very small or immaterial number of women who purchased Isabelle would not have purchased Yasmin, if Isabelle had not been available.
Whilst the calculation of damages is dictated by the facts of the case and the assessment of the relevant factors, including the relevant market and the consumers behavior, the above indicates the Court’s reluctance to award lost sales on a “one for one” basis in patent infringement cases where there is no certainty in the ‘hypothetical counterfactual’.
Category 3:
Bayer introduced Pettibelle (a generic of Yasmin) into the market from 26 June 2014 (being about a week after Bayer was awarded an interlocutory injunction preventing any further sale of the generic Isabelle by Generic Health). Pettibelle was introduced by Bayer at a lower price than Yasmin to deal with the “price depression” effect caused by Isabelle. It was priced at $66, being around halfway between the retail prices for Yasmin (around $71 to $73) and Isabelle (around $60 to $61).
Bayer claimed for losses in margin by way of sales of Pettibelle, rather than Yasmin, from June 2014 to June 2016. Generic Health submitted that there was no evidence to support this proposition, or otherwise any evidence that it could foresee that Bayer would release (and make a claim in respect of) its own generic when the competing generic (i.e. Isabelle) was withdrawn from the market (which meant that Yasmin never competed with Isabelle on the market).
Justice Jagot accepted Bayer’s position on the basis that “it was foreseeable that Bayer would respond to the infringement in various ways, including the introduction of its own generic version at a cheaper price than Yasmin”. Justice Jagot described this as a natural and direct consequence of the introduction of Isabelle and held that Generic Health was liable to pay Bayer damages in respect of Bayer’s sales of Pettibelle for a two-year period commencing June 2014.
On appeal, Generic Health argued that this loss, even if caused by the infringement, was not on the evidence foreseeable. Further, Generic Health argued that causation was not in any event established in respect of the full two-year period as any loss would be a short-term loss and would be rectified on a consumer’s first visit to a pharmacy to obtain Yasmin or Pettibelle (in the evidence, the maximum multicycle purchase was three months). Alternatively, Generic Health argued that the primary judge was wrong to assess damages on the basis that every sale of Pettibelle would have been a sale of Yasmin, had Isabelle not been on the market.
The Full Court rejected the first two aspects of this argument and held that Bayer’s losses in margin by way of sales of Pettibelle were foreseeable for the full two-year period. In particular, the Full Court held that a “[c]laimable loss for patent infringement can include lost profits from a patentee, because of the infringement of its rights, having to reduce the price, and accordingly, the profitability, of the patentee’s goods in order to retain its market or regain its profitability due to “price” depression caused by the infringer’s conduct. Moreover, such “price depression” loss may be continuing and may be awarded for a reasonable period following the withdrawal of an infringing product from the market.” The Full Court otherwise agreed with the facts found and inferences drawn by Justice Jagot.
However, the Full Court ordered a 2% discount to be applied, consistent with its earlier ruling in Category 2 above.
The Full Court’s decision clearly provides a favorable precedent for originator pharmaceutical companies to recover losses resulting from their own introduction of a generic product in response to infringing conduct, even in circumstances where the infringing conduct has ceased.